The RBA will and should cut rates to 0.25 percent.

Last month it was a 50-50 call on whether the RBA would reduce the cash rate. This month it was a lot clearer – rates were rightly cut by 0.25 percent today and there will probably be another 0.25 percent cut next month.  

While the decision to cut the cash rate by 25bp to 0.75 percent was priced into the market as a near certainty, the factors influencing the outcome were certainly not straightforward. 

By cutting rates, the RBA is sending a signal to the market, to politicians and to the community at large, that the Australian economy is not firing on all cylinders

The sluggish GDP figures, particularly the weakness in household consumption, shows the RBA would have been justified in cutting cash rates faster.

It seems inevitable the Reserve Bank of Australia will drop the cash rate in its meeting next week, and possibly again later in the year.

So, the Reserve Bank of Australia resisted growing calls to cut interest rates yesterday. They were right to do so.